Hurwitz Fraud Trial Begins

The federal trial in which Texas financier Charles Hurwitz, the former owner of Pacific Lumber, is being sued for defrauding the U.S. government of hundreds of millions of dollars got off to a quick start on Monday. By lunchtime of the first day of trial, attorneys had agreed on a nine-member jury. By late afternoon, both sides had completed their opening statements.

The fraud case has two high-powered law firms facing off in the Oakland courtroom of U.S. Judge Claudia Wilken (who also presided over the Judi Bari and Darryl Cherney civil rights lawsuit against the FBI in 2002.) The Hurwitz trial is expected to last three weeks, and possible witnesses include a host of government officials including U.S. Rep George Miller.

The Burlingame-based law firm of Cotchett, Pitre & McCarthy, which specializes in social justice cases, is representing plaintiffs Richard Wilson, former director of the California Department of Forestry (CDF) and Chris Maranto, a CDF sustained yield forester. The federal government is not a party to the suit.

The legal mega-firm Morrison & Foerster is representing Hurwitz, whose company Maxxam purchased Pacific Lumber in 1986 in a leveraged takeover financed by "Junk Bond King" Michael Milken's investment firm Drexel Burnham Lambert. Legendary attorney James Brosnahan, one of the most recognized trial lawyers in the country, heads up Hurwitz's team of attorneys.

Wilson and Maranto claim Hurwitz falsified documents as part of a $250 million deal to sell the Headwaters Forest to the federal government and the State of California. The allegedly fraudulent documents allowed Pacific Lumber to increase the number of trees cut each year on a separate 200,000 acres owned by the timber company instead of reducing the annual harvest, as stipulated in the 1999 Headwaters Agreement and various state and federal laws.

Both sides claimed the case is fundamentally a simple one, but nonetheless both brought large entourages of attorneys, technical assistants and public relations people who squeezed into their allotted courtroom space among stacks of document-filled cardboard boxes, binders and laptop computers.

During his 40-minute opening statement, lead plaintiff's attorney Joe Cotchett frequently pointed at Hurwitz, who sat attentively in the first row wearing a charcoal black suit. Cotchett said the plaintiffs will show that Hurwitz manipulated the company's Sustained Yield Plan, a side agreement to the Headwaters purchase that guided harvesting rates on 200,000 acres of Pacific Lumbers timberlands. The plan, Cotchett claimed, misrepresented the growth rate of various tree species and falsely claimed certain tree types were growing in locations on 200,000 acres of Pacific Lumber property.

"The problem was Hurwitz knew the state would never approve his plan to cut more trees, so what he did was manipulate the sustained yield plan with a model that accelerated the time it takes trees to grow," Cotchett said.

Based on the manipulated data, Cotchett continued, Hurwitz's plan was approved by the CDF. "And what Mr. Hurwitz does is he goes to the marketplace and says he has a plan that will allow him to cut $700 million worth of trees, and he borrows more money." Cotchett said, which meant increased loan payments. "The mantra in the forest was 'cut trees.'"

Hurwitz attorney Jim Bennett pointed out to the jury that the United States, co-purchaser of the Headwaters Forest, was not a party in the suit -- a key fact, because it was the entity that was allegedly defrauded.

He also said that at no time did Hurwitz misrepresent or falsify the sustained yield plan or a habitat conservation plan, and furthermore, it was the plaintiff Wilson who signed off on the Sustained Yield Plan when he was director of CDF.

"Former employees of Pacific Lumber will testify under oath that they in no way tried to defraud the United States of America," Bennett said. "And Mr. Hurwitz will testify to his moral certainty that at no time did he set out to defraud the United States of America."

In fact, Bennett said Hurwitz was instrumental in creating the Headwaters Forest Reserve, now protected public lands. "Since the 1960s, there had been attempts to put that land into public ownership," Bennett said. "To his credit, Mr. Hurwitz made that deal happen."

Hurwitz's 22-year reign over Pacific Lumber was characterized by controversy and protest over his aggressive clearcutting of ancient redwood forests in Humboldt County. Shortly after the hostile takeover in 1986, Hurwitz threw out the sustainable logging principles that the lumber company had lived by since the 1940s and more than doubled the number of trees that were being cut annually in order to pay off the huge debt he had taken on to buy the company.

In 2007, the crushing $714 million debt Hurwitz's Maxxam Corp. had laden onto Pacific Lumber forced the 144-year-old company to file for bankruptcy. In 2008, the Fisher family of San Francisco -- founders of The Gap and other chain stores and owners of the Mendocino Redwood Company -- won a hard-fought battle in bankruptcy court, taking control of Pacific Lumber and renaming it the Humboldt Redwood Company.